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All the things Olli said

It’s probably a good sign for the influence of the European Parliament that remarks made to it by a European Commissioner can cause a row. So it is with Economic and Monetary Affairs Commissioner Olli Rehn who presented a narrative of Italy’s flirtation with bond market shutdown during October and November 2011 that seemed too favourably disposed to the arrival of Mario Monti as the game-changer — in the context of an election featuring the same set of personalities now:

[the inaction on fiscal policy] led to a drying out of lending which suffocated economic growth and led to a political dead-end in Italy and the formation of the new government of Mario Monti, which then later on was able to stabilize the situation,” Rehn told the European Parliament on Tuesday. “This is clearly an example of the confidence effect in play.”

In what amounts to a contrite statement by Brussels standards, Rehn’s spokesman later clarified:

Neither Vice-President Rehn nor the European Commission comment on issues in the context of a national election campaign, in Italy, or any other Member State. Vice-President Rehn is responsible for fiscal and economic surveillance within the European Commission and his recounting in the European Parliament this morning of the events of the autumn of 2011 should be seen in this context.

and then outlines a set of dates which shows that the Commission at the time was reacting both to an enhanced reform proposal of the Berlusconi government plus additional elements added by Monti as its attitude to the country improved over the course of November.

It’s nonetheless tough to erase the impression that the EU establishment was much happier with Monti as PM; he was after all, one of their own. But the Eurogroup statement of 25 November 2011 which was the welcome to the new government warrants a 2nd look:

On his visit to Rome on 25 November, Vice President Rehn welcomed the economic programme of the new Government and its broad based support in the Parliament. He emphasized that “the priorities set by Prime Minister Monti are the right ones and I fully endorse them: step-up fiscal consolidation, adopt bold measures to re-launch growth, and ensure social fairness.” And he added: “Italy needs a comprehensive and wide-ranging package of reforms to kick-start growth again and offer its young people the perspective of more but also better jobs. I underline – and this is particularly relevant in this country – this is not only about fiscal consolidation but also, and I even say first and foremost, about economic reforms that can lift the potential for growth and jobs. The strong mandate for reform and the shared sense of urgency will certainly help in this regard.”

Given the widespread view that Monti delivered much more on the austerity part of his intent than the growth part, Rehn’s opening standard for the new government nicely makes clear the jobs and growth part was not just something that Monti’s critics grafted on to his assessment later. If Rehn provided a fuller evaluation of Monti’s government to the European Parliament yesterday, using his own standard of 14 months ago, there might not be as much of a row.

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One thought on “All the things Olli said”

When Monti became premier of Italy, more than a year ago, I remember that the idea of “inner devaluation” was very fashonable.
The idea was, roughly, that countries like Italy lost competitiveness because of internal inflationary pressures, so that costs in Italy had to fall to regain competitiveness.
The never stated but implicit assumption was that those countries had somehow disfuncional labor markets, that did lead to excessively high wages, that did lead to excessively high internal prices and a loss of competitivity.
As a consequence austerity was a way to break the back of unions, introduce more “flexibility” in the labor market etc.; this was at least as important as the “confidence fairy”.
Thus, austerity was seen by many as the way to generate growth through internal devaluation, not as something opposed to growth, although this sounds really stupid today (and it was already stupid at the time).